Creating Business Value

Back in May I wrote about failed projects and the myths surrounding the supposed high percentage of project failures in the IT industry. I tried to make the point that the only true measure of project success is the value the project brings to the business and that success is not just bringing in a project on time and within budget. I recommended that Project Managers measure their projects by business value generated.

I don’t think I took that idea far enough. I believe that PMs should actively seek to achieve business value in their projects from the very beginning of the project and to push that idea all the way through the project. One way to do this is to think of risk in a new light – the risk that the project is not generating business value.

We should be constantly looking at risks to our projects, determining the potential impact of those risks and taking appropriate action or at leas planning for what to do if a risk becomes reality. We usually look at those risks in terms of cost or time lost. What we need to do is look at the impact on business value.

For example, a risk could be late delivery of the production server hardware from a vendor. The impact is that production cut-over is delayed and the schedule is extended by one week.

But what is the impact to the business? If this production server is to support an e-commerce site intended to go live in late October to handle the Christmas sale rush, a delay of one week could be devastating to the sales for that season. On the other hand, if the server is for a data warehouse to support analysis of the Christmas season campaign after the fact, the impact on the business of a week’s delay might be minimal.

It could be relatively easy to include such measures when doing qualitative and even quantitative risk analysis. This can help you prioritize risk responses and manage your risks in a more realistic fashion.

Business value can also be factored into the monitoring of project progress. The metrics offered by earned-value analysis do not allow for such factors to be taken into account. Earned value is a narrow measure of the value the project has earned toward the goal of completing on time and within budget. It gives only a passing nod to business value.

How could a project manager measure business value while executing, monitoring and controlling a project? This would require a new set of metrics that go beyond earned value. It might be possible to work out something very complex. Even better would be to apply Occam’s razor (or if you like, the KISS principle) and find the simplest solution first. Here’s a suggestion:

1. Predict the value the project will bring to the business over the period following the completion of the project (could be 1-3 years).
2. The total value over that period, if the project completes on time, is the baseline value.
3. If the project is expected to be late, determine how much business value will be “eaten”.
4. If the project can come in early, calculate the added business value that can be earned.
5. Factor in additional or saved project costs.
6. This gives a new business value figure. Is it better or worse than the baseline? Make decisions based on that.

I’m sure someone out there can come up with some better ideas on how to do such a measurement and it might even vary by organization or project. The point is – make sure you use business value as your prime factor in determining project success or failure!